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Efficient provision of electricity for the United States and Switzerland

Author

Listed:
  • Boris Krey

    (Department of Economics, University of Zurich)

  • Philippe K. Widmer

    (Department of Economics, University of Zurich)

  • Peter Zweifel

    (Department of Economics, University of Zurich)

Abstract

This study applies financial portfolio theory to determine efficient frontiers in the provision of electricity for the United States and Switzerland. Expected returns are defined by the rate of productivity increase of power generation (adjusted for external costs), volatility, by its standard deviation. Since unobserved productivity shocks are found to be correlated, Seemingly Unrelated Regression Estimation (SURE) is used to filter out the systematic component of the covariance matrix of the productivity changes. Results suggest that as of 2003, the feasible maximum expected return (MER) electricity portfolio for the United States contains more Coal, Nuclear, and Wind than actual but markedly less Gas and Oil. The minimum variance (MV) portfolio contains markedly more Oil, again more Coal, Nuclear, and Wind but almost no Gas. Regardless of the choice between MER and MV, U.S. utilities are found to lie substantially inside the efficient frontier. This is even more true of their Swiss counterparts, likely due to continuing regulation of electricity markets.

Suggested Citation

  • Boris Krey & Philippe K. Widmer & Peter Zweifel, 2008. "Efficient provision of electricity for the United States and Switzerland," SOI - Working Papers 0812, Socioeconomic Institute - University of Zurich, revised Dec 2011.
    • Handle: RePEc:soz:wpaper:0812
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    Download full text from publisher

    File URL: https://www.zora.uzh.ch/id/eprint/52399/1/wp0812.pdf
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    Cited by:

    1. Nguyen, Thu Lan Thi & Laratte, Bertrand & Guillaume, Bertrand & Hua, Anthony, 2016. "Quantifying environmental externalities with a view to internalizing them in the price of products, using different monetization models," Resources, Conservation & Recycling, Elsevier, vol. 109(C), pages 13-23.

    More about this item

    Keywords

    efficiency frontier; energy; electricity; portfolio theory; Seemingly Unrelated Regression Estimation (SURE);
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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